Freddie Mac: Multifamily Investing Conditions Improve in 2Q

Multifamily investment opportunities improved in the second quarter, reported Freddie Mac, McLean, Va.

Freddie Mac Multifamily Research and Modeling Vice President Steve Guggenmos said the Apartment Investment Market Index rebounded in the second quarter with increases in all 14 markets the AIMI tracks aas well as nationally.

“Second quarter increases in AIMI were primarily driven by large increases in net operating income combined with slightly declining mortgage rates,” Guggenmos said. He noted despite positive income growth in most markets the index declined year-over-year, largely due to mortgage rate increases over the past 12 months.

The Multifamily Apartment Investment Market Index combines rental income growth, property price growth and mortgage rates to measure multifamily market investment conditions. A higher index reading from one quarter to the next implies a better environment for multifamily investment; a decline suggests that attractive investment opportunities are becoming harder to find.

“In short, the index captures current trends in the multifamily market, which continues to be bolstered by robust demand and overall housing shortages,” Guggenmos said.

Second-quarter gains were driven by a number of factors, Freddie Mac reported. First, all metro areas tracked saw positive net operating income growth. Seattle (AIMI growth: 3.9 percent) and Boston (6.2 percent), saw increases that significantly exceeded historical averages. In addition, mortgage rates fell slightly in the second quarter, a marked change from the first quarter, which saw a significant increase. Property price growth was mixed across metros; six markets experienced a contraction and eight–as well as the national average–saw growth.

On a year-over-year basis, the investment index decreased nationally and in 12 local markets, Freddie Mac said. Only Orlando (AIMI growth: 1.3 percent) and Houston (0.6 percent) saw increases from 12 months ago. Net operating income growth remained positive for all markets except New York (AIMI growth: -4.40 percent), Austin, Texas (-2.42 percent) and Houston, which continued to absorb high levels of supply.

But over that same period, mortgage rates jumped 24 basis points–a significant driver to the index’s decline in most markets. Property price growth was largely positive, with Chicago (AIMI growth: -12.4 percent), Los Angeles (-8.3 percent) and Phoenix (-10.0 percent) all experiencing double-digit growth over the past year.